Business Band-Aid

Retire Right

The '97 law also expanded the availability of IRAs and established the Roth IRA. With a Roth IRA, contributions made to the accounts are nondeductible, but withdrawals are tax-free as long as certain conditions are met. Although Horton says the Roth IRA is attractive to many taxpayers, only time will tell whether these new retirement accounts are as beneficial as they appear to be.

The jury may be out on their effectiveness, but Roth IRAs have succeeded in causing confusion among taxpayers, says Horton. "Some taxpayers were trying to take their $2,000 contribution for a traditional IRA and then make another $2,000 contribution to a Roth IRA, which simply isn't allowed," she explains.

Nevertheless, Watkins-Snead says she recently established a Roth IRA for herself. This type of account is good for her, because she's not yet offering her 12 employees a retirement plan, on the other hand, Bower-sock provides her employees with a 401(k) plan, because unlike they would with a Roth IRA, her employees are able to make pretax contributions, which reduces taxable income.

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This article was originally published in the May 2000 print edition of Entrepreneur with the headline: Business Band-Aid.

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